UK: Britain might have made a bigger splash. The island, exposed to big Atlantic sou'westerlies, is probably the finest offshore wind regime in the world.

The government had hoped to build a world-class offshore supply chain around its natural assets to help replace manufacturing jobs in the UK's dying trades. But at the Offshore Wind 2010 conference in Liverpool in June, there were fears that the country might come up short in its attempts to reinflate its manufacturing sector with offshore wind.

There is a feeling that the UK's offshore goals are simply not ambitious enough to give manufacturing companies confidence in the sector. As the UK's Department of Energy and Climate Change submitted its renewable energy action plan (NREAP) for meeting the country's EU targets for 2020, the offshore wind industry was already urging the new coalition government to set an offshore goal of at least 20GW.

"We need more than 20GW of sites developed by 2020 if we are to ensure that the UK has a big enough domestic market to be an attractive location for inward investment," said Maria McCaffery, chief executive of clean energy association RenewableUK, at the conference.

Yet the 13GW that the government actually expects to be operating offshore by 2020 falls well short of that 20GW - in fact it is just a whisker higher than the 12GW outlined in the previous government's 2009 renewable energy strategy, the precursor to the NREAP. This represents an "unacceptable poverty of ambition", said McCaffery. "If the UK has deployed only that much we shall have repeated the policy mistakes of onshore wind and missed the enormous opportunity to build a UK supply chain."

Too little, too late

In a prerecorded address, the UK's new climate secretary, Chris Huhne, said the government was considering raising its targets for renewables - but only beyond 2020. That is possibly too little, too late to maximise a great opportunity for the UK to build a green economy around offshore wind. But even if existing legislation does help, it may not be clear or toothy enough to deliver the sort of sector economists and environmentalist alike want to see.

McCaffery said the new government seemed committed to offshore wind, but bemoaned the uncertainty over renewables policy, including the offshore transmission regime, the future of the renewables-obligation support mechanism, funding for ports, and targets for offshore wind. "There is still no clear idea of the eventual path the coalition will take," she said.

From the Department of Business, Innovation and Skills, Gordon Innes, head of the low-carbon team, reassured the industry that any policy changes would not affect existing investments. Offshore wind farms receive a greater number of renewables obligations certificates (Rocs) than their onshore cousins for every megawatt hour of wind they produce. Banded Rocs would be maintained, said Innes. He added that any introduction of a feed-in tariff (FIT) system of fixed-price support would be done with the aim of providing certainty for investors. "We don't want people to stop investing while we look at the potential for FITs."

Innes admitted government cutbacks would mean there is less money to provide fiscal stimulus to individual companies but insisted that the strategic investment decisions made by the previous government would be honoured. These include support to attract Mitsubishi, Siemens and GE to the UK, as well as the ú60 million ports competition which, he said, remains a priority.

In addition, plans for the green investment bank (GIB) are being advanced, said Innes. This would bring back project finance and draw new capital into the offshore sector. "We will be taking forward detailed proposals after the spending review in the autumn," he promised.

Value of non-commercial banks

Yet despite the concerns of RenewableUK that the GIB should support and not replace private investment, Andrew Buglass, head of power and structured finance at the Royal Bank of Scotland, welcomed the prospect of it shoring up the squeeze on private capital in the sector. In 2007, bank lending to the renewable sector across Europe amounted to EUR7 billion. "We're now talking about significant sums in one (national) market, not Europe, at a time when many banks have exited temporarily from the market," he warned, adding: "I believe they will come back."

However, he forecast that for two or three years, lending volumes would remain constrained. "It's critical that we make the offshore sector, from a financing point of view, boring and commoditised," he said. "The fewer risks we perceive as lenders, the easier it will be to encourage a new source of capital. In practice that is going to be very hard, particularly as we move out into deeper water. That is why non-commercial banks, such as the GIB, are so important."

Buglass said projects were being financed and constructed, citing the 630MW London Array project, which should close its financing soon. Liquidity is returning to the debt markets and there is more appetite for offshore, he said. He also noted appetite on the equity side, with a broader array of sponsors entering the sector, particularly in Round 3. "The UK fundamentals are very good," he concluded.

Nonetheless, Rob Hastings, director of marine estate at the Crown Estate, expressed concern that at today's capital costs and operation and maintenance costs, the industry hangs on the edge of viability. Indeed, many in the industry say that the key goal - a reduction in costs - is being missed; in fact, offshore costs are increasing.

The received wisdom was that, as knowledge increased and economies of scale took hold, the cost of bringing offshore plants online would fall. It has not worked out like that. Hastings pointed out that North Hoyle wind farm cost ú1.2 million per megawatt in 2003. Allowing for inflation and the fact that it was underpriced at the time, in today's terms it would cost ú2.6 million/MW. "That's still 20% less than it would cost to build offshore today," he said. "Sadly, we have not derived the benefit of learning scale and technology improvement; we have gone backwards." He challenged the industry to reduce costs to ú2.5 million/MW by 2013 and ú2 million/MW by 2017. "Failure to do so threatens the future viability of the industry," he warned.

Collaboration between developers would bring costs down, said John Sinclair, managing director of conference sponsor Subocean Group. Projects face the same problems, he explained, so developers could reduce costs if they were to co-operate - for example, on the use of vessels to install foundations, turbines and cabling. And work offshore needs to expand beyond fine-weather windows: "This market has to realise there are 365 days in the year," he said, pointing out that the oil and gas sectors have collaborated to overcome these problems. "We've got to use the same model. That's the only way we're going to get costs down."

Supply-chain investment

With enormous opportunities in the offing, supply-chain investment is urgently needed, Sinclair said. Europe's cable-laying fleet needs to grow by more than 500% to satisfy the needs of the offshore-wind market. Likewise, the number of foundation and turbine installation vessels also needs to grow by 500%. But developers need to take a "reality check" and realise that the supply chain is struggling to access the market, he warned, adding: "The reality is that very few are confident of taking this bold step."

Indeed, there are only seven or eight companies that have made major moves into the sector. With most work done on a project-by-project basis, the majority cannot see the scale or the consistent project pipelines that would provide commercially viable futures.

"This industry could be as big as the oil and gas industry in years to come," said Sinclair, adding that the government has only a couple of years to get the policy right. Offshore supply-chain firms need to make investment commitments as early as 2012 to ensure that they can meet rising demand - and that manufacturing capability is located in the UK.

Britain is building its offshore manufacturing sector but, without wholehearted government commitment, it risks being more an economic trickle than a tidal wave.

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